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Last Updated: Tuesday, 22 January 2008, 16:13 GMT
Reaction to the shock US rate cut
A TV screen showing the cut in US rates
Has the Fed over-reacted?
The US central bank, the Federal Reserve, has cut interest rates in the world's largest economy to 3.5% from 4.25%.

The move surprised markets by both the size of the reduction and the fact that it was made before the Fed's rate-setting committee's official meeting at the end of January.

Here, market experts and economists give their views on the Fed's attempt to stave off a recession in the US.

JOHN HAYNES, EQUITY STRATEGIST, RENSBURG SHEPPARDS

It's an overdue move.

The Fed is clearly convinced they need to do everything to prevent a recession rather than worry about inflation. Whether they will be successful, we'll know in three months.

HOLGER SCHMEIDING, SENIOR ECONOMIST, BANK OF AMERICA

It has shown that we are in a game of psychology.

The economic data in America has been mixed, but market sentiment has turned very sour.

The Fed is trying to prevent market sentiment from turning into economic behaviour.

WILLEM BUITER, FORMER MEMBER OF THE BANK OF ENGLAND'S MONETARY POLICY COMMITTEE

I view it as a gross over-reaction and a panic move.

Either the Fed is intrinsically concerned about the stock market crashing and that's really none of its business, or the Fed greatly over estimates the effect of a stock market crash on the real economy. Either way it's not good news.

JOHN CAREY, VICE PRESIDENT, PIONEER INVESTMENTS, BOSTON

I personally think that the economy has a lot of issues right now with respect to housing, the availability of credit and a slowdown in order rates for different types of business equipment.

This might help a little bit in the near-term, but basically I think we're on the downside of an economic cycle and while this type of move could help, we still have some basic issues to resolve before we can begin a full-fledged recovery. I think it will be some time before the economy starts to turn around.

In the near-term too I'd expect that this sharp interest rate cut would wreak havoc on the dollar, unless the European Central Bank does something similar. The dollar is going to be under some extreme pressure.

DAVID JONES, CHIEF MARKET STRATEGIST, IG INDEX

Maybe it'll ease some of the pressures on the banking sector and maybe retail and consumers will feel a bit happier.

A Bank of England cut is expected in the UK next month and maybe now that has thrown a question mark into how big that cut is going to be.

The Bank has got a couple of weeks to see how things pan out, unless they decide to make an emergency cut, but I doubt they will now that the US have done it.

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